US Fed Monetary Policy Review- 4 things markets are watching at today’s meeting; dissent vote, economic worry
时间:2024-06-26 12:49:46 阅读(143)
Ten-year Treasury yields have slumped almost 75 basis points in just a matter of weeks as investors fret about the prospect of a recession, providing a glum backdrop to the two-day Federal Reserve meeting that concludes today. Here’s what traders are watching for:
Size of hike
— While the Fed has gone into the traditional quiet period and there being no murmur suggesting otherwise from usual Deep Throat media outlets, the tail risk of a bigger move has faded.
Dissent
— Fed Kansas President Esther George, who voted in favor of a 50-basis point increase at the June meeting, may do an encore. Before the Fed’s blackout period, she had remarked that “more abrupt changes in interest rates could create strains, either in the economy or financial markets, that would undermine the Fed’s ability to deliver on the higher path of rates communicated.”
— It’s not clear what’s weighing on the mind of the vice-chair for supervision, Michael Barr, as he hasn’t made public comments on monetary policy since he was sworn in.
— Fed Boston President Susan Collins, who took office this month, remarked that “inflation is too high and addressing this is a key priority,” suggesting she may vote with the majority.
Statement
— The Fed is likely to acknowledge recent signs of weakness in the economy stemming from July’s PMI numbers, new-home sales and waning consumer confidence.
— The Fed’s second paragraph from its June statement stated that “the committee is highly attentive to inflation risks.” Any tweak to that sentence would be construed as an acknowledgment that the Fed is attuned to economic risks, though I think it’s premature and unlikely given that inflation is way above its target.
Guidance
— There being no dot plot accompanying this meeting, traders will parse the language of the Fed statement to see what it thinks of the path ahead in light of signs that the economy is slowing.
— Interest-rate traders are factoring in about 100 basis points of tightening in the remainder of the year excluding Wednesday’s expected increase, but that pricing is very much work in progress. So the Fed’s language and Chair Jerome Powell’s thoughts on the Fed’s intended path from here will be the key to any market reaction.
— If the Fed were to signal that it won’t be spooked by pockets of weakness in the economy, expect front-end yields to trade with an upward bias. The longer end may, however, rise initially but turn down subsequently if traders estimate that the Fed’s bias will tilt the economy downward into a recession.
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However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.
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